Understanding sustainable growth in the face of economic policy uncertainties

Abstract

AbstractThis paper investigates the impact of economic policy uncertainty (EPU) in China, measured by a news-based index, on the sustainable growth of 2771 Chinese non-financial A-share firms (including 1674 SMEs and 1097 non-SMEs) from 2010 to 2022. We also analyze how green business practices moderate the impact of EPU on firms' sustainable growth. After implying various econometric models, this study finds that EPU has a significant negative effect on the sustainable growth of Chinese firms, which is more pronounced among non-SMEs. Heterogeneity analysis reveals that the negative impact of EPU on CSG is more pronounced in big firms, highly leveraged firms, firms with low liquidity and low financialization in China. We further reveal that this negative impact of EPU stems from trade policy uncertainties. Furthermore, findings reveal that green business activities positively moderate the association between EPU and sustainable growth, and that this moderating impact is more pronounced among SMEs. These findings are consistent with various robustness approaches. This paper provides useful insights for enterprises to improve their sustainable growth in the context of economic policy uncertainties by adjusting their number of employees, board of directors, average age of staffs, financialization level and debt flexibility.